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3. this year shoreline light and gas slampg paid its stockholders...

# Question: this year shoreline light and gas slampg paid its stockholders...

###### Question details

This year, Shoreline Light and Gas (SL&G) paid its stockholders an annual dividend of \$1.50 a share. A major brokerage firm recently put out a report on SL&G predicting that the company's annual dividends should grow at the rate of 11 % per year for each of the next five years and then level off and grow at the rate of 6 % a year thereafter.

(Note :

Use four decimal places for all numbers in your intermediate calculations.)

a. Use the variable-growth DVM and a required rate of return of 12 % to find the maximum price you should be willing to pay for this stock.

b. Redo the SL&G problem in part a, this time assuming that after year 5, dividends stop growing altogether (for year 6 and beyond, g equals 0g=0 ).

Use all the other information given to find the stock's intrinsic value.

c. Contrast your two answers and comment on your findings. How important is growth to this valuation model?